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Sustaining A Guarantee System:Sustaining A Guarantee System:Issues, Challenges and Good Issues, Challenges and Good PracticesPractices
By:
Wan Azhar Wan Ahmad
Managing DirectorCredit Guarantee Corporation Malaysia Berhad
2
1.0 About Credit Guarantee Basic Guarantee Principles Stages of Credit Guarantee System
2.0 Issues & Challenges
3.0 Best Practices Comprehensive Framework for Development of
SMEs CGC’s Transformation Plan Key Success Factors
4.0 Conclusion
ORDER OF PRESENTATION
3
To influence & direct flow of credit.
Funds are used to back loans granted by lending institutions.
Funds available are used to build up reserves.
“Risk-sharing” principle.
1.0 About the Credit Guarantee Basic Guarantee Principles
4
STAGES OF A GUARANTEE SYSTEM
-1
0
1
2
3
4
5
6
7
Time 0 0.5 1 1.5 2 2.5 3 3.5 4Time
Gro
wth
Pre-Development
Seed
Growth
Matured
Identify Issue
• Access to financing for SMEs
• Solution: An intermediary between FIs and SMEs, i.e CGC
• Government support in terms of funding is essential
• Set-up & establish clear objectives of CGC
Expanding Outreach
• Creating greater acceptance of the g’tee
• Encourage other Government bodies to leverage / subscribe to g’tee concept
Repositioning
• G’tee system to be market driven
• Products to be commercially attractive
• Enhanced Risk Management
• Pricing based on risk
• Government’s funding reduced – efforts to build own reserve
Sustainability
• Financial Sustainability as an agenda
• G’tee system is market driven and transparent
• Products & services are market driven
• SME sector more informed – SMEs in position to ‘shop around for the best deal’.
1.0 About the Credit Guarantee Stages of Guarantee System
Creating Need
• G’tee to enhance bankability of SMEs
• Simple g’tee scheme
• Automatic cover
• Objective claims processing
• Government to regulate banks to participate (incentives / penalties)
Nurture
5
-1
0
1
2
3
4
5
6
7
Time 0 0.5 1 1.5 2 2.5 3 3.5 4Time
Gro
wth Pre-
Develop-ment
Seed
GrowthMatured
• As business advances, lending pattern become more sophisticated with expansion of credit facilities eg. OD, tradelines, etc
• Portions of the loans can be guaranteed as FIs & SMEs are more knowledgeable
____________
• Max loan: USD167,000
• Limited facility – Term Loan
• Repayment over a fixed tenure
• Enable SMEs to learn the art of managing a loan
• G’tee schemes not sophisticated
• All loans are placed under g’tee to ensure proper monitoring and supervision.
________________
• Max loan: USD83,000
Nurture• Products are
developed jointly with FIs & feedback from SMEs to ensure relevance.
• Products are priced based on risk to benefit SMEs – better credit standing, hence lower cost of financing.
____________
• Max loan: USD3.3 mil
• SMEs able to leverage on a hybrid of products to optimize benefits.
• Infrastructure are sophisticated – information are timely and enhances credibility of SMEs.
• SMEs have an “upper hand” in availing to the best suited products in the market.
_______________
• Max loan: USD3.3 mil
1.0 About the Credit Guarantee Evolution of Guarantee Based Lending
Note : Throughout the timeline, risk sharing will vary from 30% to 100% depending on sector, target group & risk threshold
Note : Throughout the timeline, risk sharing will vary from 30% to 100% depending on sector, target group & risk threshold
6
1.0 About Credit Guarantee Basic Guarantee Principles Stages of Credit Guarantee System
2.0 Issues & Challenges
3.0 Best Practices Comprehensive Framework for Development of
SMEs CGC’s Transformation Plan Key Success Factors
4.0 Conclusion
ORDER OF PRESENTATION
7
ContinuousSupport
from Stakeholders
Risk BasedPricing of
Products & Services
Credit Bureauto address
credit standingOf SMEs
SUSTAINABLE GROWTH
2.0 Issues & Challenges
Risk Management
• Can’t rely on explicit support - funding, grants, budgetary allocation
• More implicit support required without monetary reliance - e.g. endorsement of schemes, bureau support, counter g’tee, etc.
Profit Oriented
Not Profit Motivated
• To change “subsidy mentality “ to pricing based on risk
• Establishing a pricing model to commensurate with different risks of SMEs
• SMEs unaware of their credit standings
• New acts (CRA & PDP) which may impede development of Bureau’s data sharing/ exchange initiatives
• Inculcate “risk management culture” - High risk SMEs may not be able to avail to g’tee.
• Creating awareness of CGC’s changed role - Commercially Oriented whilst complementing Developmental Role
CRA – Credit Reporting Agencies ActPDP – Personal Data Protection Act
8
1.0 About Credit Guarantee Basic Guarantee Principles Stages of Credit Guarantee System
2.0 Issues & Challenges
3.0 Best Practices Comprehensive Framework for Development of
SMEs CGC’s Transformation Plan Key Success Factors
4.0 Conclusion
ORDER OF PRESENTATION
3.0 Best PracticesFinancing Landscape for SMEs
9
6 Pillars of the Framework for the Development of SMEs
Ven
ture
Cap
ital
Cre
dit
En
han
cem
ent
Tra
inin
g
Mar
keti
ng
Ad
viso
ry
Fin
anci
ng
Fin
anci
ng
BIs & DFIs VCsInstitute for SMEs
Trading Companies, MNCs,etc.
National SME Advisory & Info Centre
CGC
• Product Segmentation
• Credit Information Services
• Business Consulting and
Advisory
• Risk Adjusted Pricing for
better returns from products
& services
• Investment Strategy
• Tapping capital market for
funds
New CGCSME Outreach Through Broader
Product RangeFinancially Sustainable
3.0 Best Practices CGC Transformation Plan
Commercially driven Financially sustainable
Complement Financial Institutions Involvement in social development agenda tied to Government support
10
CGC Transformation PlanProduct Segmentation
Current Products available :
11
- Credit Enhancer Scheme- Enhancer Express Scheme- Small Business Express- Direct Access Guarantee Scheme- Flexi Guarantee Scheme- Portfolio Guarantee- Securitization
- Credit Enhancer Scheme- Enhancer Express Scheme- Small Business Express- Direct Access Guarantee Scheme- Flexi Guarantee Scheme- Portfolio Guarantee- Securitization
Commercial- Attractive & flexible features- Generate returns
Commercial- Attractive & flexible features- Generate returns
Government-backed Schemes
- High developmental content (Programme Lending)- Backed by Government via
- Funding - Risk sharing
Government-backed Schemes
- High developmental content (Programme Lending)- Backed by Government via
- Funding - Risk sharing
- Green Technology Financing Scheme- SME Modernization Facility- SME Assistance Facility - SME Assistance Guarantee Fund - Franchise Financing Scheme- Tabung Projek Usahawan Bumiputera-i
- Green Technology Financing Scheme- SME Modernization Facility- SME Assistance Facility - SME Assistance Guarantee Fund - Franchise Financing Scheme- Tabung Projek Usahawan Bumiputera-i
GUARANTEE PRODUCTSGUARANTEE PRODUCTS
12
Establishment of Credit Bureau
-- One stop centre for credit information and ratings on SMEs and One stop centre for credit information and ratings on SMEs and
micro-businesses.micro-businesses.
- - A platform for SMEs and micro-businesses to build, maintain and A platform for SMEs and micro-businesses to build, maintain and
enhance their track record & credit standing.enhance their track record & credit standing.
-- Promotion of sound credit culture amongst SMEs.Promotion of sound credit culture amongst SMEs.
CGC Transformation PlanCredit Information Service
13
Credit Bureau - Bridging the Credibility Gap
CGC Transformation PlanCredit Information Service
LACK OF COLLATERALLACK OF COLLATERAL INADEQUATE INFORMATIONINADEQUATE INFORMATION
SMEs & Micro-businesses need to build a credit TRACK RECORDSMEs & Micro-businesses need to build a credit TRACK RECORD
Credit Reports
Credit Reports
Financial Institutions can improve
TIMELINESS & ACCESS TO FINANCING
Financial Institutions can improve
TIMELINESS & ACCESS TO FINANCING
Scope of Advisory Services:
Assist SMEs in preparation of loan documentation To enhance viability and reduce default cost
Challenges Measuring the input & output Quantifying strategic outcome Lack proper infrastructure – as not core activity No economies of scale Advisory services not holistic – lack expertise
Action Plan Collaboration with Strategic Partners with proven
track record.
CGC Transformation PlanBusiness Consultant & Advisory
14
Support & from
Government –Financial & non-
financial
Establishment of a Risk-Sharing
Mechanism
Credit Bureauto address
credit standingOf SMEs
KSF in line with best practice ….
End-to-End handholding
& advisoryservices
15
CGC Transformation PlanKey Success Factor
15
16
1.0 About Credit Guarantee Basic Guarantee Principles Stages of Credit Guarantee System
2.0 Issues & Challenges
3.0 Best Practices Comprehensive Framework for Development of
SMEs CGC’s Transformation Plan Key Success Factors
4.0 Conclusion
ORDER OF PRESENTATION
Conclusion
17
SMEs are enablers of
Government aspiration
Policies & key thrust areas to be given focus
Credit guarantee mechanism is of
strategic importance to SMEs in ensuring access to financing
SME SUCCESS